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EBA consults on swaps bail-in 

May 14, 2015

Helen Bartholomew, IFR

The European Banking Authority has launched a public consultation on draft regulatory technical standards for valuing derivatives liabilities that are set to be included in new bail-in rules under the Bank Recovery and Resolution Directive.

With its current proposals, the EBA aims to provide EU resolution authorities with tools to carry out objective valuations based on costs and gains that would be incurred when a counterparty enters into a replacement derivatives trade following the liquidation or restructuring of its financial counterparty.

The industry largely pushed back on including swaps in new rules that aim to spread losses associated with the insolvency of a credit institution to bondholders as well as shareholders. Swaps participants argued that additional layers of complexity involved in valuing contracts for the purposes of haircutting could result in legal and consultancy costs exceeding any value that could be extracted from bailing in the contracts.

Read more: IFR

 
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